Phelps on Keynesianism

That’s false. It’s not ‘clear’ at all. The argument is not settled.

We INTUIT that spending may in some ways create innovation. But we can’t prove it. There isn’t much evidence of it. And there is so much noise created by the boom bust cycle that it’s pretty hard to make out anything at all.

We know that spending and loose money creates demand, decreases employment AND misallocates capital. Capital follows the easiest opportunity. It exacerbates booms and busts. You just choose to write off the damage done whenever you’re questioned about it. I don’t think you understand the tragedy of the commons behavior this process creates — exploit what you can before it falls apart. It’s not like this nonsense takes place entirely in the market. It moves from the market into politics, and further polarizes the entire process.

We SUSPECT that periods of ‘contraction’ do the opposite, which is to expand innovation of all types, everywhere. It certainly looks to be the case. It makes logical sense that opportunity constraint makes people seek opportunity in ‘harder’ places.

But the jury is out. The argument is not settled. Other than perhaps the confirmation provided by the Germans, who pursue this strategy on cultural and moral grounds rather than rational grounds, and they have less coalition building to do in their party system, so it’s not necessary to express the problem in rational terms.

We can’t achieve the same thing here in the states because of ideological factions, most of which are antagonized by your hero. You “SPENDERS” don’t look at all four policy levers as a set that must be moved IN CONCERT so that misallocation of capital does not occur. The side-effect of moving all four levers in concert is that everyone across the political spectrum also buys into the solution:
a) spending (liberals and progressives)
b) credit (moderates)
c) industrial policy (classical liberals and conservatives)
d) human capital (austrians and conservatives)

Why do they ‘buy in’? Because a four-lever ‘transaction’ is an inter-temporal exchange from which everyone in every class benefits, not an inter-temporal redistribution which benefits some at the cost of others. Even if none of the participants can articulate their idea in such clear language.

This is why the progressive alliance fails. It fails because it seeks redistribution rather than exchange. This is why you and Krugman are frustrated. You because you beliefe “Sh__t happens”. Krugman because he’s a racist and an ideologue. He’s well aware of what he’s doing. He’s just the Limbaugh of the Left. Limbaugh works with the economy of norms, Krugman with the monetary economy. But they’re identical in practice.

You on the other hand simply err: “Sh__” doesn’t “happen”. It’s caused. It’s caused by distortion of the inter-temporal information system that allows us to coordinate our activities in such a way that we ensure we are following productive ends.

Politics is either voluntary exchange or involuntary theft. Exchanges are self-justifying. Thefts are unjustifiable. Period. Politics is coalition forming, or it’s just dictatorship. And however you choose to justify your preference for dictatorship, it’s dictatorship and nothing more. And the moment you justify your preference with dictatorship, you put back on the table the opposition’s right to press for dictatorship. And in this case, the other side is more capable of putting it into place and maintaining it. They have a more accurate view of human nature. They’re just less willing and interested in doing so.

So let’s all stay with seeking exchanges, OK? There are at least four specialties in political economy if we don’t count the MMT group. Together those four groups force an inter-temporal exchange that limites the distortionary effects of credit and spending by matching them with future increases in production.

Statesmen lead their states. Ideologues lead their ideology. Hacks are just hacks.